Krugman Agonistes

Paul Krugman says he is "agonizing" about the reappointment of Ben Bernanke to the chairmanship of the Fed. Of course, he "agonizes" for all of the wrong reasons. Bernanke, you see, is too worried about "inflation" at a time, Krugman says, when he should be more concerned about "joblessness."

You have to understand that Krugman, who writes in The Return of Depression Economics that printing money "solves" a lot of economic problems, really believes that the printing press creates wealth. (No doubt, if I could print money and pay off my debts, that would solve a lot of my problems, too, but nonetheless printing money is what the ancients once called inflation.)

Like every good Keynesian, Krugman actually believes inflation is a good thing. You don't believe me? Then read this from an earlier post on his blog:

Right now, real interest rates are too high, on a PPE basis (that’s Proof of Pudding is in the Eating): the economy is clearly operating far below capacity due to insufficient demand. The cost of that insufficient demand is enormous — not just in dollars of wasted output, but in severe social and psychological damage to the unemployed.

While real interest rates are too high, however, the short-term nominal rate is as low as it can go. So there are only two ways real rates can be reduced. Either the Fed has to buy long-term assets, driving down the wedge between short and long rates — the Gagnon proposal, which comes out of Ben Bernanke’s own work — or it needs to raise expected inflation. Or it could and probably should do both. (Emphasis mine)

The problem, of course, is that Krugman is stuck in the "inadequate aggregate demand" ghetto of thought. Print money and everything falls into place. The guy truly believes that all assets and capital are homogeneous, and that all that is needed to make the system work is a new shower of "expected inflation." Enough said.